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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
PROVISION FOR INCOME TAXES | 7. INCOME TAXES Components of earnings before income taxes and the provision for (benefit from) U.S. and other income taxes from operations follow:
| For years ended December 31,
(Dollars in millions) | 2019 |  | 2018 |  | 2017
Earnings before income taxes |  |  |  |  |
United States | $ | 454 |  |  | $ | 718 |  |  | $ | 654 |
Outside the United States | 448 |  |  | 592 |  |  | 635 |
Total | $ | 902 |  |  | $ | 1,310 |  |  | $ | 1,289 |
Provision for (benefit from) income taxes |  |  |  |  |  |  |  |
United States Federal |  |  |  |  |  |  |  |
Current (1) | $ | 55 |  |  | $ | 161 |  |  | $ | 220 |
Deferred (2) | 19 |  |  | (11 | ) |  | (383 | )
Outside the United States |  |  |  |  |
Current | 62 |  |  | 86 |  |  | 62 |
Deferred | (32 | ) |  | (22 | ) |  | 2 |
State and other |  |  |  |  |
Current | — |  |  | 30 |  |  | 13 |
Deferred | 36 |  |  | (18 | ) |  | (13 | )
Total | $ | 140 |  |  | $ | 226 |  |  | $ | (99 | )
(1) | A one-time transition tax of $71 million on deferred foreign income tax is included for 2017.
(2) | Includes a one-time benefit of $517 million primarily due to the remeasurement of certain net deferred tax liabilities using the lower U.S. corporate income tax rate and a one-time $72 million valuation allowance on deferred tax assets for foreign tax credit carryforwards for 2017.
The following represents the deferred tax (benefit) charge recorded as a component of AOCI in the Consolidated Statements of Financial Position:
| For years ended December 31,
(Dollars in millions) | 2019 |  | 2018 |  | 2017
Defined benefit pension and other postretirement benefit plans | $ | (10 | ) |  | $ | (10 | ) |  | $ | (16 | )
Derivatives and hedging | (2 | ) |  | 3 |  |  | 8 |
Total | $ | (12 | ) |  | $ | (7 | ) |  | $ | (8 | )
Total income tax expense (benefit) included in the consolidated financial statements was composed of the following:
| For years ended December 31,
(Dollars in millions) | 2019 |  | 2018 |  | 2017
Earnings before income taxes | $ | 140 |  |  | $ | 226 |  |  | $ | (99 | )
Other comprehensive income | (12 | ) |  | (7 | ) |  | (8 | )
Total | $ | 128 |  |  | $ | 219 |  |  | $ | (107 | )
Differences between the provision for (benefit from) income taxes and income taxes computed using the U.S. Federal statutory income tax rate follow:
| For years ended December 31,
(Dollars in millions) | 2019 |  | 2018 |  | 2017
Amount computed using the statutory rate | $ | 189 |  |  | $ | 274 |  |  | $ | 450 |
State income taxes, net | 36 |  |  | 6 |  |  | (4 | )
Foreign rate variance | (68 | ) |  | (52 | ) |  | (150 | )
Domestic manufacturing deduction | — |  |  | — |  |  | (18 | )
Change in reserves for tax contingencies | 36 |  |  | 21 |  |  | 20 |
General business credits | (52 | ) |  | (60 | ) |  | (65 | )
U.S. tax on foreign earnings | (17 | ) |  | 10 |  |  | 29 |
Foreign tax credits | — |  |  | (12 | ) |  | (26 | )
Tax law changes and tax loss from outside-U.S. entity reorganizations (1) | 7 |  |  | 20 |  |  | (339 | )
Other | 9 |  |  | 19 |  |  | 4 |
Provision for (benefit from) income taxes | $ | 140 |  |  | $ | 226 |  |  | $ | (99 | )
Effective income tax rate | 16 | % |  | 17 | % |  | (8 | )%
(1) | Includes a one-time net benefit primarily due to the remeasurement of certain net deferred tax liabilities using the lower U.S. corporate income tax rate partially offset by the transition tax on deferred foreign income and changes in the valuation of deferred tax assets associated with tax law changes and the tax impact from intercompany reorganization activities in 2017 and a net incremental adjustment to those amounts under the Tax Reform Act in 2018 and 2019.
The 2019 effective tax rate includes a $7 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act. The 2019 effective tax rate also includes adjustments to the tax provision to reflect finalization of prior year's income tax returns and an increase to state income taxes related to additional valuation allowance provided against state income tax credits. The 2018 effective tax rate included the impact of the U.S. corporate tax rate reduction resulting from the Tax Reform Act and the repeal of the domestic manufacturing deduction. The 2018 effective tax rate also included a $20 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act. These adjustments related to the one-time transition tax on deferred foreign income and changes in valuation of deferred tax assets associated with tax law changes and outside-U.S. entity reorganizations as part of the formation of an international treasury services center. The 2017 effective tax rate included a $339 million net tax benefit, primarily resulting from the Tax Reform Act, and a tax loss from outside-U.S. entity reorganizations as part of the formation of an international treasury services center. The net tax benefit included a benefit from the one-time revaluation of deferred tax liabilities, partially offset by a one-time transition tax on deferred foreign income and changes in valuation of deferred tax assets associated with tax law changes and outside-U.S. entity reorganizations as part of the formation of an international treasury services center. The 2017 effective tax rate also included a $20 million benefit due to amendments to prior years' domestic income tax returns, and a $30 million benefit reflecting the finalization of prior years' foreign income tax returns. The 2017 effective tax rate also included an $8 million tax benefit due to a tax ruling permitting deductibility of a liquidation loss on a previously impaired site. The U.S. Department of Treasury has issued a number of proposed regulations related to implementation of the provisions of the Tax Reform Act and certain states may issue clarifying guidance regarding state income tax conformity to the current federal tax code. Finalization of these regulations in future periods may result in changes in the period of enactment to the amounts currently reported in the Consolidated Statements of Financial Position. As of December 31, 2019 and 2018, a non-current income tax payable of approximately $6 million and $56 million, respectively, attributable to the transition tax is reflected in "Other long-term liabilities" of the Consolidated Statements of Financial Position. In conjunction with its evaluation of the provisions of the Tax Reform Act, in 2018, the Company made an accounting policy election to account for taxes resulting from GILTI as a component of the provision for income taxes. The significant components of deferred tax assets and liabilities follow:
| December 31,
(Dollars in millions) | 2019 |  | 2018 (1)
Deferred tax assets |  |  |
Post-employment obligations | $ | 247 |  |  | $ | 230 |
Net operating loss carryforwards | 606 |  |  | 634 |
Tax credit carryforwards | 239 |  |  | 239 |
Environmental reserves | 68 |  |  | 70 |
Unrealized derivative loss | 18 |  |  | 18 |
Other | 173 |  |  | 94 |
Total deferred tax assets | 1,351 |  |  | 1,285 |
Less: Valuation allowance | 453 |  |  | 487 |
Deferred tax assets less valuation allowance | $ | 898 |  |  | $ | 798 |
Deferred tax liabilities |  |  |  |  |
Property, plant, and equipment | $ | (895 | ) |  | $ | (856 | )
Intangible assets | (439 | ) |  | (473 | )
Investments | (235 | ) |  | (179 | )
Other | (178 | ) |  | (131 | )
Total deferred tax liabilities | $ | (1,747 | ) |  | $ | (1,639 | )
Net deferred tax liabilities | $ | (849 | ) |  | $ | (841 | )
As recorded in the Consolidated Statements of Financial Position: |  |  |  |  |
Other noncurrent assets | $ | 66 |  |  | $ | 43 |
Deferred income tax liabilities | (915 | ) |  | (884 | )
Net deferred tax liabilities | $ | (849 | ) |  | $ | (841 | )
(1) | Revised from Note 7, "Income Taxes", to the Company's 2018 Annual Report on Form 10-K, which reported net operating loss carryforwards as $708 million, valuation allowance as $466 million, and investments as $(274) million.
Beginning January 1, 2019, the Company did not assert indefinite reinvestment on short-term liquid assets of certain foreign subsidiaries. All other foreign earnings, including basis differences, continue to be considered indefinitely reinvested. As of December 31, 2019 unremitted earnings of subsidiaries outside the U.S. totaled approximately $2.5 billion of which a substantial portion has already been subject to U.S. tax. The Company has not determined the deferred tax liability associated with these unremitted earnings and basis differences, as such determination is not practicable. For certain consolidated foreign subsidiaries, income and losses directly flow through to taxable income in the U.S. These entities are also subject to taxation in the foreign tax jurisdictions. Net operating loss carryforwards exist to offset future taxable income in foreign tax jurisdictions and valuation allowances are provided to reduce deferred related tax assets if it is more likely than not that this benefit will not be realized. Changes in the estimated realizable amount of deferred tax assets associated with net operating losses for these entities could result in changes in the deferred tax asset valuation allowance in the foreign tax jurisdiction. At the same time, because these entities are also subject to tax in the U.S., a deferred tax liability for the expected future taxable income will be established concurrently. Therefore, the impact of any reversal of valuation allowances on consolidated income tax expense will be only to the extent that there are differences between the U.S. statutory tax rate and the tax rate in the foreign jurisdiction. A valuation allowance of $24 million at December 31, 2019 has been provided against the deferred tax asset resulting from these operating loss carryforwards. At December 31, 2019, foreign net operating loss carryforwards totaled $2.1 billion. Of this total, $23 million will expire in 1 to 20 years and $2.1 billion have no expiration date. A valuation allowance of approximately $262 million has been provided against such net operating loss carryforwards. At December 31, 2019, federal net operating loss carryforwards of $8 million were available to offset future taxable income, which expire from 2028 to 2030. At December 31, 2019, foreign tax credit carryforwards of approximately $75 million were available to reduce possible future U.S. income taxes and which expire from 2020 to 2028. As a result of the Tax Reform Act, the Company may no longer be able to utilize certain U.S. foreign tax credit carryforwards. A valuation allowance of $45 million has been established on a portion of deferred tax assets as of December 31, 2019. At December 31, 2019, a partial valuation allowance of $72 million has been provided against state tax credits that the Company may not be able to utilize. A partial valuation allowance of $47 million has been established for the Solutia, Inc. ("Solutia") state net operating loss carryforwards. The valuation allowance will be retained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized, or the related statute expires. Amounts due to and from tax authorities as recorded in the Consolidated Statements of Financial Position:
| December 31,
(Dollars in millions) | 2019 |  | 2018
Miscellaneous receivables | $ | 211 |  |  | $ | 135 |
Payables and other current liabilities | $ | 36 |  |  | $ | 43 |
Other long-term liabilities | 139 |  |  | 162 |
Total income taxes payable | $ | 175 |  |  | $ | 205 |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(Dollars in millions) | 2019 |  | 2018 |  | 2017
Balance at January 1 | $ | 182 |  |  | $ | 142 |  |  | $ | 114 |
Adjustments based on tax positions related to current year | 22 |  |  | 44 |  |  | 29 |
Lapse of statute of limitations | (2 | ) |  | (4 | ) |  | (1 | )
Balance at December 31 (1) | $ | 202 |  |  | $ | 182 |  |  | $ | 142 |
(1) | All of the unrecognized tax benefits would, if recognized, impact the Company's effective tax rate.
A reconciliation of the beginning and ending amounts of accrued interest related to unrecognized tax positions is as follows:
(Dollars in millions) | 2019 |  | 2018 |  | 2017
Balance at January 1 | $ | 10 |  |  | $ | 6 |  |  | $ | 4 |
Expense for interest, net of tax | 5 |  |  | 4 |  |  | 3 |
Income for interest, net of tax | (2 | ) |  | — |  |  | (1 | )
Balance at December 31 | $ | 13 |  |  | $ | 10 |  |  | $ | 6 |
Accrued penalties related to unrecognized tax positions were immaterial as of December 31, 2019, 2018, and 2017. Eastman files income tax returns in the U.S. and various state and foreign jurisdictions. The Company is no longer subject to U.S. Federal income tax examinations by tax authorities for years before 2011 for Eastman legal entities and years before 2002 for Solutia legal entities. With few exceptions, Eastman is no longer subject to state and local income tax examinations by tax authorities for years before 2011. Solutia and related subsidiaries are no longer subject to state and local income tax examinations for years before 2000. With few exceptions, the Company is no longer subject to foreign income tax examinations by tax authorities for tax years before 2011. It is reasonably possible that, as a result of the resolution of federal, state, and foreign examinations and appeals, and the expiration of various statutes of limitation, unrecognized tax benefits could decrease within the next twelve months by up to $28 million.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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